The Chinese road to ruin and prison

By John Garnaut, Tai'an and Philip Wen

November 24, 2012 — 3.00am

AN AUSTRALIAN cardiac surgeon has been jailed in China after his local partner allegedly stripped him of the business he founded and listed it on the Nasdaq stock exchange.

The case of Du Zuying, who was a heart and lung transplant specialist at St Vincent’s Hospital and Melbourne’s Royal Children’s Hospital, is perhaps the most startling in a series of murky prosecutions of ethnic Chinese Australians since the 2009 arrest of the Rio Tinto executive Stern Hu.

The company Dr Du founded, China Biologic Products, supplies blood plasma products to Chinese hospitals and is now valued at just under $300 million.

Neither the Australian government nor Dr Du’s family were initially notified of his detention in what was the first of several apparent breaches of China’s procedural laws and treaty obligations with Australia.

The case highlights how China’s failure to develop a credible legal system is eroding faith in its capital markets, preventing technological innovation and increasingly affecting actors well beyond China’s shores.

It also raises questions about whether Australian ministers and officials are systematically discouraging publicity of politically awkward ‘‘consular’’ cases in China, contrary to the wishes of Australian detainees and the advice of Chinese lawyers and international experts.

Diplomats urged the Du family to exercise “extreme caution” before approaching the media. The case was concealed from public view for nearly two years.

Dr Du was detained at Beijing’s Capital Airport on February 9, 2011, while waiting to board a flight to Australia where he would see his wife, Gong Jinxiu, and twin sons Tommy and Bruce.

“I waited four or five hours at Sydney Airport after the signal board said the flight had landed,” said Tommy Du, a 30-year-old tax professional at a big Australian company.

The family discovered his father had been detained through informal channels but did not receive official confirmation for nearly two weeks.

The family arrived in Australia in 1989 and obtained citizenship in the early 1990s.

Dr Du developed a new powdered form of blood plasma protein that he hoped would help alleviate an acute shortage of blood for emergency transfusions in poor areas of rural China, such as Hubei province where he was born.

It might have been one of Australia’s most successful biotech ventures if not for a series of opaque transactions that transferred Dr Du’s majority shareholding into the hands of his Chinese business partners.

Dr Du’s Beijing lawyer, Huang Kaiguo, says he is acting without payment because he is appalled at the treatment of “a great scientist” who has developed technology “that can benefit humanity”.

“This is the most miserable case I’ve come across in 10 years as a lawyer,” he said.

Mr Huang said media exposure was imperative for advancing Dr Du’s case and also the broader battle for rule of law in China because “devils are afraid of sunlight’’.

Dr Du was taken from Beijing to Tai’an City, at the foot of the famous Mount Tai in Shandong province, where the company has its production headquarters.

His representatives allege that top city officials were paid multi-million dollar bribes to put him in jail when he won a crucial court case in another jurisdiction which would have led him to reclaim his business.

The sequence closely mirrors that of two other successful Australian entrepreneurs who are currently serving prison sentences in Guangzhou, Matthew Ng and Charlotte Chou.

“This is China’s reality,” said Dr Du’s lawyer, Mr Huang, of the Beijing law firm Youbang. “Show me an official and I’ll show you a bribe taker.”Australian consular officials have regularly visited Dr Du in Tai'an but were unable to attend the key event of his court trial in September 2011, due to scheduling conflicts.

On October 27, 2011, Dr Du asked Australian consular officials to tell his son: "I think it's time you contacted the media in Australia and China … and release my case file to the public."

But consular officials discouraged it. "Post advised that client and family should be extremely cautious when dealing with media," said the November 1 note to Tommy Du, which confused his father's family name and given name.

A spokeswoman for the Department of Foreign Affairs and Trade denied the dept discouraged media contact. ''Consular officers offer no advice one way or the other,'' she said.

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A worried Tommy Du holds a picture of his father, jailed in China.Credit:Kate Geraghty

In December 2011, Tommy Du wrote to Australia's ambassador in Beijing, Frances Adamson, urging her to make strong representations to prevent his father's case from turning out like those of Matthew Ng and Charlotte Chou.

The letter did not receive a reply. On January 6 this year Dr Du was sentenced to four years' jail for embezzlement relating to two old corporate loans, each of 2.4 million yuan, in 2002 and 2003.

In his defence, he says the first loan was above board and repaid within a month while the second was made without his knowledge.

In March, the Foreign Affairs Minister, Bob Carr, rejected a plea from the family to raise the matter with Chinese officials. "It is inappropriate for the Australian government to seek to interfere in the legal processes of other countries," said a letter sent on behalf of Senator Carr.

Dr Du in Sydney in th 1990s after securing citizenship.

The minister visited Beijing in May and raised concerns about the three high profile cases that had previously been revealed by Fairfax Media - Stern Hu, Matthew Ng and Charlotte Chou - but not Dr Du. Stern Hu, a former Rio Tinto executive, was detained in July 2009 with three other Chinese colleagues. In March 2010, he faced court, pleading guilty to stealing commercial secrets and receiving bribes. He was sentenced to 10 years' jail.

Fairfax Media understands that no Australian official or politician has raised Dr Du's case outside routine consular channels, even though a verdict on his January appeal became overdue seven months ago.

Du Zuying at his graduation from Melbourne University in 1992.Credit:Kate Geraghty

In Shandong, the provincial High Court judge in charge of Dr Du's case, Zhang Yuntong, told Fairfax that Chinese law requires a verdict to be handed down either six or 10 weeks after an appeal, depending on circumstances.

There can be exemptions in cases where "new evidence" is introduced, he said, but he could not reveal whether such circumstances applied to Dr Du's case. "Whether this case involves collecting new evidence or verification is regarded as a secret, so I can't tell you," he said. "And this court does not normally accept interviews."

Judge Zhang said he had forwarded to police separate allegations about the true identity of the man who most benefited from the opaque transactions that stripped Dr Du of his company.

Dr Du, his lawyer and a now-defunct short-selling research firm called Worthless Pennies claim that Mr Lam (Lin Dong in Mandarin Chinese) was previously known as Lin Ziping, a retired colonel in the People's Liberation Army Air Force.

In 1999 a PLA Air Force tribunal sentenced Lin Ziping to six years' jail for his role in smuggling Nokia phones and evading 334 million yuan in tax - an offence that would disqualify him from corporate office.

Documents obtained from the military tribunal, seen by Fairfax, show the prison mug shot and fingerprints of the convicted felon Lin Ziping look identical to those of Lam Tung. Earlier this year Lam Tung, or Lin Ziping, stepped down as chief executive of the New York-listed company and its Chinese subsidiary, Shandong Taibang Biological Product, after the companies were unable to deny the allegations.

The board of directors, then chaired by Mr Lam's wife, Siu-Ling Chan, had established a ''special independent subcommittee'' that eventually told the US Securities and Exchange Commission that it could neither ''confirm nor exclude'' the possibility that Mr Lam was actually the convicted criminal Lin Ziping.

In other words, the company failed to establish the identity of its chief executive and its chairperson could not confirm the identity of her husband.

Fairfax's endeavours to contact Mr Lam were unsuccessful.

At corporate headquarters in Tai'an, an executive, who gave his family name as Wang, said that both Mr Lam and his wife had stepped down from all positions, disposed of all their shares, and had not been in contact since.

Company documents had previously warned investors that a shareholder dispute "calls into question our ownership of 66 per cent, or a majority, of our primary operating subsidiary, which if not resolved in our favour will adversely affect our business."

When Dr Du was detained the company was able to water down that awkward investor warning. As soon as he was convicted, it dropped the warning altogether.

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A spokesman for China Biologic said: ''China Biologic's current board of directors is made up of a majority [of] independent directors and the company is being managed by a professional executive team, none of whom is affiliated with or related to Mr Lam or [Dr] Du.'